The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 11

Government level

The Chinese government has played a very important role in the internationalization process of Chinese firms. China's “going-out” strategy was envisaged in the mid-1990s and formally adopted in the late 1990s and early 2000s (UNCTAD, 2006). The “going-out” strategy is a complementary component of the “open-door” policy promulgated in 1978 (Li, 2005). The state encourages giant state-owned businesses to become internationally competitive corporations through listing on domestic and overseas stock markets, increasing research and development expenditures, and acquiring other businesses (Nolan, 2002). China aims at developing a large number of Chinese MNCs that are internationally competitive through public offerings, mergers and acquisitions, restructuring and cooperation (Beijing Municipal Committee for Foreign Economic and Trade, 2008). Indeed, China's outward FDI in recent years would not have grown so fast without official encouragement from the government.

It is difficult to estimate the actual scale of government endorsement, because Chinese firms may not be willing to fully reveal the amount of support that they received from government agencies (Child & Rodrigues, 2005; Meyer & Scott, 1983). Warner, et al. (2004) observed that acquisitions are becoming a “normal” way for Chinese firms to enter and penetrate a foreign country (p. 340). They speculated that the state's sponsorship and funding support are key factors that make these acquisitions possible, considering the huge amount of money involved in some of the acquisitions. Even though we cannot exactly know the scale, format, or amount that the state and its agencies provided directly to Chinese firms in their internationalization processes, we can at least assess the government's impact on the firms' capabilities in terms of resource linkages, leverage, and learning.

Although firms in emerging economies are constrained by the resources available from markets because of institutional voids in the financial, labor, and product markets, researchers have argued that firms can gain legitimacy and resources by becoming embedded in the dominant institutions that control resources in the emerging market (Peng, 2003; Peng & Heath, 1996; Peng, Lee, and Wang, 2005). As such, it is important for firms in emerging economies to develop connections or linkages with the government, as governments in emerging economies often have considerable power in resource allocation. This is the case in China as well.

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